Don’t cut your variable costs too far

While financial pressures have forced many growers to trim their variable inputs to the bare minimum, there is still scope for big savings in fixed costs.

So says Bidwells’ Chloe Bell, who believes that some people are going too far when it comes to reducing chemical and fertiliser use and more attention should be given to cutting fixed costs.

In one example, she says eagerness to reduce spray and artificial fertiliser costs over a 2-3 year period led to a £100/ha saving in variable costs, but the resulting 2t/ha drop in yields meant the farm’s operating profit went from £37/ha to a loss of £9/ha.

“Variable cost reduction is often a false economy.

Cutting out key sprays such as plant growth regulators or fungicides could all produce a yield reduction.”

Before doing anything, growers need to know their cost of production, she says.

“For farmers who don’t do enterprise costing, this will be one of the biggest issues.”

Deciding whether to cut out or invest in inputs can be tricky, acknowledges Syngenta’s Pat Ryan.

“You need to make sure every input gives you value for money, which comes down to three key decisions – is it effective on the target (disease, weeds, lodging), does it result in a yield increase and does it result in a value increase?”

Fungicides, for example, undoubtedly provide a good return on investment, given the potential yield losses from diseases such as Septoria tritici, brown rust and yellow rust, he says.

The average fungicide programme costs £57.33/ha, while yield gain from fungicides is typically about 2.1t/ha, he notes.

Once you know your costs of production, reducing fixed costs is all about gaining economies of scale, continues Ms Bell.

“This can be done by using contractors, contract farming arrangements, buying or renting more land or collaboration and joint ventures.”